Is your worker an independent contractor or an employee?
It can be difficult for employers to determine if their workers are independent contractors (IC) or employees. Although classifying a worker as an independent contractor may seem beneficial to the employer, misclassifying a worker can have very costly consequences. The IRS provides a fact sheet outlining the differences between an employee and an independent contractor. There are three key categories that can be used to determine how to classify a worker. The three categories to consider are behavioral control, financial control, and the relationship of the parties.
Behavioral control examines whether or not the employer has control over how the work is done. Workers are classified as employees if the employers have control over or have the right to control when, where, and how the work is done. Employees may receive training from their employer on how to perform the job. Independent contractors do not typically receive training from their employers.
An IC can make a profit or a loss. They usually invest in their own equipment, tools, and materials and have unreimbursed expenses.
Employees can only make a profit from their work.
Relationship of the Parties
The permanency of the relationships is a key indicator of the type of worker. An employee relationship is expected to continue indefinitely. An Independent contractor relationship is only expected to continue through a set project or a set period of time.
Additionally, independent contractors typically do not receive benefits from their employers such as insurance, pension plan, or vacation pay whereas employees do typically receive these benefits.